Further anchoring the proposed Freeport, TX, liquefied natural gas (LNG) import terminal, ConocoPhillips last week bought a 50% stake in the project, agreed to provide $400-450 million in construction funding and will build and operate the terminal for Cheniere Energy and the other partners in Freeport.

ConocoPhillips also will take 1 Bcf/d of capacity at the terminal. About 500 MMcf/d or its 1.5 Bcf/d sendout capacity already has been subscribed by Dow Chemical.

The terminal, which would be located on Quintana Island, near Freeport in Brazoria County, TX, is expected to begin service in 2007. It already has received preliminary environmental approval from the Federal Energy Regulatory Commission.

“This unprecedented LNG terminal transaction brings certainty to our project,” said Michael S. Smith, Freeport LNG CEO. “Combined with our previously announced agreement with The Dow Chemical Company, we will be able to commence construction on the first new LNG regasification facility in the United States in more than two decades with up to 100% of our capacity committed as soon as we receive FERC approval.”

Cheniere also filed certificate applications last Monday with FERC for two other Gulf Coast LNG import terminals, including one at Sabine Pass, LA, and another in Corpus Christi, TX (see related story).

“This project has been very successful for us and sets the stage for the development of our LNG receiving terminal sites at Sabine Pass and Corpus Christi,” said Cheniere CEO Charif Souki. “We announced last week that we expect to file applications with FERC for these sites on Monday. We will begin marketing capacity in January.”

The transaction calls for ConocoPhillips, as a user of the facility, to pay its proportionate share of operating expenses and fuel costs, a throughput fee of $0.05/Mcf, and all amounts necessary to amortize the construction funding. In addition, ConocoPhillips will pay a nonrefundable capacity reservation fee of $10 million, expected to be received by Freeport LNG in January 2004. The transaction is expected to close in the spring of 2004, subject to completion of remaining documentation and satisfaction of closing conditions.

The Freeport terminal will be designed with storage capacity of 6.9 Bcf. Natural gas will be transported through a 9.4-mile 36-inch diameter pipeline to Stratton Ridge, TX, which is a major point of interconnection with the Texas intrastate gas pipeline system. Other facilities in the project include LNG ship docking and unloading facilities with a protected single berth, two 26-inch diameter LNG transfer lines and six high-pressure LNG vaporizers.

The LNG terminal is being developed in response to the growing need for gas supplies for commercial, industrial and residential consumers in Texas and elsewhere. Gas prices have risen sharply because of production declines and continuing demand increases.

Freeport LNG, which is 50% owned by privately held Freeport Investment, is also partially owned by two Houston-based independents, Cheniere Energy Inc., with a 30% interest, and Contango Oil & Gas Co., which has a 10% stake.

Cheniere said the management of Freeport LNG will remain in place and be responsible for all commercial activities and customer interface for the remaining capacity in the facility. ConocoPhillips will be primarily responsible for the management of construction and operation of the facility.

Approval from FERC is expected in the first quarter of 2004, with all other necessary federal, state and local approvals shortly thereafter. The project front-end engineering and design study will be completed in January 2004. Construction is scheduled to begin in the second half of 2004, with commercial startup in mid-2007.

Cheniere Energy acquired an option on the Freeport LNG site in June 2001 and funded the initial permitting expenses of the project. On Feb. 27, 2003, Cheniere entered into an agreement forming the Freeport LNG partnership with Freeport LNG Investments, LLC (owned by Michael S. Smith) for the continued funding of the project.

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